Triple Bottom Line?

There simply used to be the bottom line but in the case of SRI/ESG investing there are potentially three main bottom lines.

Financial

Social

Environmental

“The phrase “the triple bottom line” was first coined in 1994 by John Elkington, the founder of a British consultancy called SustainAbility. His argument was that companies should be preparing three different (and quite separate) bottom lines. One is the traditional measure of corporate profit—the “bottom line” of the profit and loss account. The second is the bottom line of a company’s “people account”—a measure in some shape or form of how socially responsible an organization has been throughout its operations. The third is the bottom line of the company’s “planet” account—a measure of how environmentally responsible it has been. The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a Triple Bottom Line is taking account of the full cost involved in doing business.” *Taken from the Indiana Business Review

The problem is measurement especially within the people and planet areas. How are they measured and what is the common unit of measurement across all three aspects? It could be helpful to measure across a common index and at the end determine a score that is monetized so that the profitability portion can be increased or decreased depending on the people and planet portion.

“Echoing the growth in corporate social responsibility reporting, a growing number of mostly small- and medium-sized companies are taking environmental and social stewardship further and becoming benefit corporations — companies that are legally bound to have a positive effect on society —according to a report by Worldwatch Institute.

Signs indicate that interest in becoming a benefit corporation is growing. The number of companies annually using benefit corporation nonprofit advocate B Lab’s online assessment tool, which is a marker for broader interest in eventual certification, grew from 280 in 2007 to 2,406 in 2012. By the end of the first quarter of 2013, some 8,000 individual companies had used the tool, according to the report.

Most benefit corporations to date are either small or medium-sized businesses. But they include a few larger companies that are privately held, such as the outdoor apparel and accessory firm Patagonia, which became a benefit corporation in early 2012 and posted annual sales of about $540 million for the fiscal year ending April 2012.

King Arthur Flour is another large benefit corporation. The employee-owned, 223-year-old company reported sales of about $84 million in 2010, the report says.

Proponents of this new corporate form say it “bakes a triple bottom line into a company’s DNA” that frees companies from the fear of shareholder lawsuits if their decisions fail to maximize shareholder value because of some competing interest of other stakeholders, such as workers.

Benefit corporation status is intended to establish the directors’ fiduciary responsibility to consider the interests of all stakeholders.” *Taken from the Environmental Leader-May 2013

This summation is only intended to introduce the reader to a different analytical framework so that they are able to potentially judge companies on their merit beyond the traditional financial metrics.

In a way, this opens up many possibilities for holding companies accountable truer to ones ethos and to their view on how a corporate society can evolve.

Sincerely,

Tom Koehler-CIO

“Socially Responsible Investments represent a complex asset class and while we covered a small amount, there is a lot more information needed prior to making an investment decision. Let us know if we can provide more information to help in that process.”